چکیده انگلیسی

In this paper we study the implications of population ageing in an economy with a sizeable non-traded goods sector. To this effect a highly stylized micro-founded macro model is constructed in which the age structure of the population plays a non-trivial role. The model distinguishes separate birth and death probabilities (thus allowing for net population change), allows for age-dependent labour productivity (thus mimicing life-cycle saving), and includes a rudimentary pension system (thus allowing for intergenerational redistribution). The model is used to analytically study demographic and pension shocks.

مقدمه انگلیسی

The western world is ageing rapidly. As was recently argued by Lee (2003), the ageing process since the postwar period can be attributed both to increased longevity and reduced fertility. As a result, the population share of elderly people has increased dramatically. For example, for the countries comprising the most developed regions, the old-age dependency ratio1 was 12% in 1950, 21% in 2000, and is projected to increase to 44% in 2050 – see United Nations (2003). Between the most developed regions countries there is quite a lot of variation. For example, Japan had an old-age dependency ratio in 2000 of only 25% but this ratio is expected to rise to 72% by 2050. For a number of small open European economies the corresponding figures are: Belgium (from 26% to 47%), Germany (from 24% to 49%), Italy (from 27% to 65%), and the Netherlands (from 20% to 42%). The figures for the United States are less drastic but still noticeable (from 19% in 2000 to 32% in 2050).
It is widely believed that demographic changes of such order of magnitude will have profound and long-lasting economic effects, both on the world as a whole and on individual countries. This paper focuses on the second issue by posing the question: How will small open economies be affected by ageing? We answer this question in two steps. First, we analyse the macroeconomic effects of various (composite) demographic shocks in a model of a small open economy with a non-traded goods sector. We show how changes in the demography influence capital accumulation, household consumption, aggregate output, and economic growth, both at impact, during transition, and in the long run.
In the second step, we study the macroeconomic and welfare effects of pension reform. Many western countries rely heavily on unfunded pay-as-you-go (PAYG) pension systems which may become untenable due to the ageing process. Of course, in the absence of Ricardian equivalence, PAYG systems are equivalent to government debt and their reform will therefore exert significant intergenerational effects. Simply put, both explicit and implicit public debt represent an intergenerational burden in such a setting.
In contrast with the vast majority of studies on population ageing, we employ an analytical framework which is simple and flexible enough to establish our results. 2 The advantage of doing so is that we are thus able to highlight the key economic mechanisms by which ageing and pension reform exert their influence on the economy. This may make our paper useful for teaching purposes also. Like Gertler (1999) we do not consider our approach to be a substitute for large-scale numerical simulation models, but rather to be supplementary to such models. Our analysis makes use of modelling insights from two main bodies of literature. First, in order to allow for overlapping generations (OG) and the possibility of Ricardian non-equivalence, we employ the framework originally developed by Yaari (1965) and Blanchard (1985), and further extended by Buiter (1988), Giovannini (1988), Weil (1989), and Bovenberg (1993). In this framework, potentially disconnected generations are born at each instant and all agents face a constant probability of death. By distinguishing birth and death rates, the model is suitable to study demographic shocks both with and without Ricardian equivalence. We enrich the OG framework by allowing for age-dependent productivity (to capture the notion of life-cycle saving) and by including a simple PAYG pension system. 3
The second key building block of our analysis concerns the body of assumptions regarding international trade in goods and the mobility of physical and financial assets. In accordance with the literature we abstract from capital market constraints and assume that financial assets are perfectly mobile internationally. This means that the world interest rate, measured in terms of the traded good, is constant. Since small open economies often have a sizeable non-traded sector, we follow Turnovsky (1997, Chapter 4) by distinguishing two separate production sectors. The traded (or non-sheltered) sector produces an internationally traded good whose price is set in world markets. In contrast, the non-traded sector produces only for home absorption, and as a result the real exchange rate is determined endogenously within the model. We abstract from international physical capital mobility by assuming that only non-traded goods are used for investment purposes. This approach implies economy-wide adjustment costs of investment due to the increasing marginal cost of production in the non-traded sector.4
The remainder of the paper is organized as follows. In Section 2 we present the model and demonstrate its main properties. The model is saddle-point stable, but the relative capital intensity of the two sectors determines qualitatively the form of the transitional dynamics in the real exchange rate. Indeed, in the empirically relevant core case, in which the non-traded sector is relatively labour intensive, there is no transitional dynamics in the real exchange rate at all! In the remainder of the paper we restrict attention to this core case. In Section 3, we discuss the macroeconomic effects of composite demographic shocks. In the first of such shocks, there is a proportionate fall in the fertility and death rates so as to yield a stationary population growth rate. Under this scenario, there is an investment boom during the early phases of adjustment but capital crowding out (due to increased consumption of non-tradeables) in the long run. The second scenario consists of a drop in the fertility rate accompanied by an increase in the death rates so as to keep the rate of generational turnover constant but to reduce the population growth rate. Per capita consumption and financial assets both rise monotonically, but the impact and long-run effects on investment are ambiguous and depend critically on the severity of the adjustment costs (i.e. on the share of non-traded goods consumption).
In the remainder of Section 3 we study two types of pension reform, namely a decrease in the pension benefit and an increase in the retirement age (both accompanied by a reduction in the pension premium to balance the budget of the PAYG system). For the relevant case, with the interest rate exceeding the rate of population growth (the so-called Aaron condition), the reform leads to long-run increases in consumption and financial assets but a decrease in the capital stock. Again, this long-run crowding out of capital occurs because consumption of non-traded goods increases.
In Section 4 we study the intergenerational welfare effects for the two types of pension reform. We assume that the Aaron condition holds. For the pension reduction we obtain the usual result that the oldest of those generations alive at the time of the shock loose out as a result of it.5 An increase in the pension age leaves pensioners unaffected and makes future generations strictly better off. The oldest of the working-age generations bear the brunt of the reform. We close this section by developing simple conditions (involving structural economic and demographic parameters) under which majoritarian pension reform is feasible.
Finally, in Section 5 we discuss the link between our stylized analytical model and the policy debate, whilst in Section 6 we present some concluding thoughts and give some suggestions for future research.

نتیجه گیری انگلیسی

We have studied how population ageing and pension reform affect a small open economy with a non-traded goods sector and with overlapping generations of finite-lived households. Our main findings have been summarized in a number of propositions throughout the text and thus need not be restated here. Among other things, the paper highlights the role played by the non-traded goods sector. By assuming that the investment good is non-tradeable, physical capital is immobile internationally and there are economy-wide adjustment costs of investment which give rise to a well-defined investment policy and thus to a finite convergence speed in the economy. Interestingly, policies which would lead to additional long-run capital formation in a closed economy setting (e.g., a reduction in the pension payment), here lead to crowding out of physical capital even though total assets increase.
The paper can be extended in a number of directions, all of which we plan to pursue in the near future. First, it would probably be useful to endogenize the household labour supply decision. In doing so, the model could be used to study the induced-retirement effect stressed by Feldstein (1974), Kotlikoff (1979), and others. Especially in the context of pension reform this model extension could significantly affect the conclusions of the present paper.
Second, as we have argued in various places in the paper, a number of famous international trade theorems, such as the factor-price equalization theorem, the Stolper–Samuelson theorem, and the Rybczynski theorem, exert a rather dominant effect on the supply side of the model and on the form of the transitional dynamics. It would be useful to move beyond the rather special two-goods-two-factors case used in this paper (and in much of the literature), and to examine the issue of ageing and pension reform in a world in which one or all of these theorems are no longer valid.30